This is why we can’t kick the foreign oil habit. OPEC plays us like a fine tuned Stradivarius. When oil prices soar, they make a killing. But they can’t afford to leave them there too long or we will develop domestic sources such as shale and develop alternative energy sources. So oil prices are like a yo-yo, going up long enough to make a windfall profit, and coming down soon enough that energy companies fear developing new domestic sources that have no business case with oil under $60/bbl.
We need the government to put a floor on the price of oil. Put a floor at $60 and encourage US energy companies to produce whatever is viable selling at a fixed minimum prices of $60/bbl. Pending that, we will be dependent for a large share of our oil from OPEC, and they will continue to play us for the fools we are like a fine tuned instrument.
This isn’t rocket science.
Then again, oil is going back to $50 eventually and so long as we don’t mind funding middle east terrorists, I am sure the US people will be A-OK with a return to $2.45/gallon gas. As far as I’m concerned, that’s OK with me, just so long as energy stays relatively cheap.
But when oil comes back to $50/gallon, watch how fast everybody jumps off the alternative energy bandwagon and conveniently forgets all about our “dependence” on foreign oil. SUVs will be selling in short order.
Still, now might be a REALLY good time to start building some refineries that can refine high-sulfer crude. Domestic oil or not, we are going to need those.
Domestic utilities have enough trouble charging rates that guarantee investors a reasonable return on equity. This means they have trouble maintaining infrastructure.
In the 70s utility companies were trying to diversify into businesses they knew nothing about in an attempt to boost returns/dividends.
States were telling utilities they had monopolies and shouldn't be able to pay dividends that competed with non-utility companies.
Utilities said, "OK we quit the monopoly part. Let anyone who produces electricity bring it in on our lines (just pay us for what we have) and sell it for what they want. We will just be responsible for infrastructure maintenance and growth and billing.
That's what led to Enron.
yitbos
There is also the 'Cheating' factor. The higher the per barrel price the more likely individual OPEC members are to overpump their quota. When the cheating becomes widespread...
The Saudis know that when gas gets to $4/gallon, ethanol is competitive and corn farmers will go to the bank instead of them.
That is why the Saudis are manipulating the price of oil/gasoline. To make it hover at the profitability of our "moonshine gas".
That way the Saudis maximize income and the profitability of ethanol is iffy and we will spend years hesitating.
That is why we need to set a MINIMUM price of oil. That way, our domestic oil refiners and pumpers will have the confidence to build refineries and our corn farmers can offer a competitive alternative. And all of us will have the political will to develop alternative solar, wind, and nuclear power.
It is a rigged game if you play with the Saudis. We can only break their monopoly by rigging it even further.